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Payday Loans, Bad Credit Loans… What does it all mean?

If you find it harder and harder each month to make ends meet, and you are looking for a reprieve in the form of a cash injection, then you’re not alone, honestly. How can you be so sure there are others struggling with exactly the same cash flow and bad credit issues? Because of the advent of payday loans and bad credit loans.

You are not the only one for whom an unexpected school excursion means a budget blow out, and you are certainly not the only one who has paid their phone, water and electricity bill late, to the detriment of their credit report. So why is this good news for your situation? Because it means that there is financial help out there, and there are lenders who understand your needs perfectly and won’t judge the fact that you’ve had to put the groceries on credit again.

Features and Benefits of Payday Loans

A payday loan is when a lender advances you funds against your next pay check, and you pay off the loan on your next payday. Your salary acts as the security against the loan and gives you quick access to funds when you need them. Features of a payday loan include:

  • Instant approval. The payday lender knows how important it is that you receive a loan against your salary as quickly as possible, so will make sure that your application is approved the same day in most cases.
  • Online application. To speed up the applications process, you can apply for most payday loans online where you provide all of your details, and the contact details of your employer, so the lender can email, call or fax them to verify your income.
  • Age limits. In most cases, you must be at least 18 years or older to be considered for a payday loan.
  • Secured or unsecured loan. You can structure a payday loan as an unsecured loan which does not require collateral, but this does mean you will pay a higher interest rate. Using a payday loan as an unsecured loan also means that your possessions and assets can never be repossessed to repay the loan amount if you default.
  • Minimal interest. While the interest rate on a payday loan is usually higher than a normal loan, the loan term is much shorter. Therefore, over the 15 to 20 days of your payday loan, there is little chance for interest to accumulate, no matter what the rate.
  • Income verification. The amount of the payday loan you can be approved for will depend on your income and your ability to repay the loan.
  • Direct loan deposit. Once your payday loan is approved, it will be deposited directly into your bank account, frequently within 24 hours of approval.
  • Flexible repayments. When you apply for a payday loan you can choose how the loan is repaid, and you can have the full amount debited from your account on your next payday, so you don’t have to remember to make the payment. Or, if you want to spread out the repayments, you can have installments debited over several pay weeks.
  • No credit check. Most payday loan providers will be concerned with your current income and ability to repay the loan, so in most cases won’t conduct a credit check. This means you can be approved for a payday loan even if you have bad credit.

Before you apply for a payday loan, keep in mind the dangers such as:

  • A short term solution. If you have a short term financial problem, then a short term solution such as a payday loan is not dangerous. However, if you are using a short term solution to patch up a long term problem such as an inability to budget or living beyond your means, then you are going to get into a cycle of payday loans, without learning to live within your means.
  • Payday loans banned. The US government does not look favorably on payday loans, and as such have even banned payday loans in some states. In other states, there are strict rules to regulate the distribution of payday loans because of their financial dangers.
  • Repaying interest charges and fees. While your next pay check may easily cover the extra $300 you need this week from a payday loan, what about the extra $100 payable in interest and fees? Can you still meet all of your other bills and living expenses with a $400 dent in your next pay check? Plus, if you default on the loan you can be charged even more fees and the interest will continue to compound into an even larger debt.

Features and Benefits of Bad Credit Loans

Finding yourself with bad credit can be as simple as not knowing you had an overdue phone bill, or as complex as losing your job and not being able to meet your mortgage repayments anymore. Whatever the reason is that you have been rejected for a loan, there are lenders out there who will look at your credit history as only part of your eligibility criteria.

When you apply for a bad credit loan, you will be getting:

  • An unsecured loan. Unsecured loans are typically a more flexible type of lending as they don’t rely on collateral as security for the loan, and you can be approved for a bad credit loan even if you have a low credit score.
  • Your own interest rate. When you apply for a bad credit loan, the lender will still have a look at your credit report, as this helps them determine your level of risk, and in turn calculate an interest rate to reflect that risk.
  • Higher interest rates. The interest rates offered on bad credit loans are usually higher than those offered on standard secured loans because lenders want to make the risk they are taking worthwhile.
  • Riskier loan amounts. The amount you need to borrow on a bad credit loan can also affect the interest rate you are charged. For example, if you need a small amount, you can be charged a higher interest rate, because you are seen as a higher risk if you can’t manage your short term funds and payday loan rates can apply.
  • Variable interest rates. To make sure you can afford your bad credit loan, you will need to factor in future interest rate rises because if the Federal Reserve raises interest rates, then the interest rates and repayments on your loan can also rise.
  • A range of bad credit loans. You can often apply for a bad credit loan through a broker, and your broker will be able to compare the available loans and find you the best deal and the lowest interest rate.
  • Loan features. If you want to be able to manage your loan more easily, look for a bad credit loan which has the option to make additional repayments, so you can repay the loan sooner when you have extra cash, and save on interest.

At the same time, there are plenty of people willing to take advantage of your situation and your feelings of desperation at not being able to be approved for a loan. Therefore, you need to make sure you are not a victim of a bad credit loan scam. You can spot a bad credit loan scam because:

  • They will ask for an upfront payment. While you may need to pay some fees when applying for a mortgage with bad credit, usually scams asking for an advance fee will guarantee you the loan, while no legitimate lender would guarantee to lend you money without some assurance you would be able to repay it.
  • You call a 1900 number. Other scams will have you call a 1900 number where you are told to choose your loan. You are then kept on the line for so long that the scammer makes money from your phone charges.
  • You are asked not to send money through the post. If the loan company asks you to send money to them in some other way than through the post, you should be suspicious of a scam because there are strict mail fraud laws in the US, which means scammers usually try to avoid receiving payments through the mail. Instead, they will usually ask you to wire them the money.
  • They are not in the US. Most bad credit loan scams are operated from Canada or the Caribbean, but there are also numerous other places scams can originate, so check all the lender’s other credentials.
  • They ask for your personal details without giving you documentation. A legitimate lender would not ask you for your social security number, bank account number or credit card number without providing you with some written documentation on your loan. Also, avoid giving out this information over the phone.

The Dangers Of Payday Loans That You Need To Know About

At some point in most people’s lives, there is going to be the need for quick cash. Whether your car broke down or you have an unexpected medical bill to pay, sometimes a payday loan sounds like a great option.

However, before you head down to the payday loan shop, you should understand some of the dangers that come with this type of loan and why they should be your last option when it comes to getting the cash you need.

An unpaid payday loan can affect your credit score – Many people have the misconception that payday loans do not affect their credit score, however this could not be farther from the truth.

Just as with other forms of debt, if you fail to pay your payday loan in a timely manner, not only will you owe more, but your credit score can be affected.

Some individuals who take out multiple payday loans a year and fail to pay them back in a timely manner can dramatically decrease their credit score.

Finance charges can be as high as $30 for every $100 you borrow – Similar to the way in which interest works, finance charges vary based on the payday loan you seek. Based on every $100 that you intend to lend, you will be charged a fee.

These fees can be as high as $30 for each $100 that you borrow, not to mention if you have not repaid the loan by the end of the designated term, those same finance charges are charged once more.

Some payday loan companies will charge less, such as $15 per $100 borrowed, so it would be wise to ask about the charges from multiple payday loan locations if possible.

The payday loan terms can vary based on the lender – While most lenders will offer a loan term period of two weeks, this amount of time can vary across payday loan companies.

You definitely need to be sure that you understand all the terms that are associated with every loan you take out, especially if you are working with different payday loan companies.

Payday loans can leave you with more debt than you would have if you took out a credit card loan – Because of the high finance charges and the short terms for payday loans, many individuals find themselves overwhelmed with this debt and can never seem to pay it off.

The more time that goes by, the more you will pay in finance charges, more so than with traditional loans or even credit card loans.

While payday loans can be an answer to the need for fast money, it is important for anyone who is borrowing money in this way to understand all that goes into these types of loans and that it is not cheap.

If you need cash fast, it is wise to make payday loans your last option and only if you are certain that you can repay the loan quickly. Otherwise, these loans can be more dangerous than helpful.

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